Julius Baer commodities research analyst Carsten Menke said in a note that car sale related headlines should eventually cool sentiment for palladium, which could trigger profit-taking and lead to a price correction.
The metal was the best performer of 2017 and the strength has continued into 2018 with prices at US$1,100 per ounce on January 4, closing in on the 2001 record high of $1,125/oz.
"This does not come as a big surprise anymore, considering the prevailing bullish sentiment in the futures market and the encouraging technical trend, both on an absolute basis as well as relative to its sister metal platinum," Menke said.
He added that long positions in palladium futures held by speculative traders, such as hedge funds, were at multi-year highs, while short positions were near multi-year lows.
This bullishness was at odds with recent car sales figures, which normally act as an indicator of palladium demand.
US car sales were down last year for the first time since the Great Recession, while sales growth in Europe also slowed, despite rising incentives. In China, sales were also sluggish for most of the year, with the situation expected to worsen as policymakers remove sales tax discounts.
"Although this slowdown should not weigh too much on autocatalyst demand, the related headlines should still be sufficient to cool bullish sentiment in the futures market, trigger profit-taking and lead to a correction in palladium prices", Menke said.
"While short-term price risks are still skewed to the upside, we remain bearish on a medium-term horizon."
